Archive | February, 2010

Case Study — Specialty Medical Chemicals

24 Feb

“The higher you rise in an organization, the more you have the play the role of organizational architect.” – Michael Watkins, Harvard Business School

Summary

Case Study 9-399-094 from Harvard Business School asks how Specialty Medical Chemical’s new CEO, Carl Burke, should restructure his senior management team to grow the company’s product lines and sales, and create value for shareholders.* In his first 90 days, Carl has discovered his senior management team is weak, and sales have slowed. Carl has developed a new strategy for the business, developing three new divisions to focus on developing, marketing and selling new pharmaceutical, generic and biotech products. Now, he needs to create the management team to carry out his vision.

* Specialty Medical Chemicals appears to be a pseudonym. Perhaps, as they used to intone on Dragnet, the “names have been changed to protect the innocent.”

Quantitative/Qualitative Analysis

Specialty Medical Chemicals’ products have matured, and without significant new product development, top-line revenue and earnings will stall, just as the company’s market capitalization already has. His task is to reignite growth and create value.

Carl has an additional challenge. As a new leader within the organization, he has a limited timeframe in which to make changes. Michael D. Watkins, a former Harvard Business School faculty member and author of The First 90 Days: Critical Success Strategies for New Leaders at All Levels, says “If you fail to build momentum during your transition, you will face an uphill battle from that point forward.”

SMC is a publicly traded company, and investors won’t wait forever for growth. In fact, if analysts rate the company’s prospects poorly, it could begin to affect the institutional investment community’s willingness to invest. Carl needs to take action soon.

Although financials are not given for SMC, we can assume the company is profitable, just not growing as it should. Also, we aren’t aware of what the chairman and Board of Directors want Carl to do, but we can presume they want greater returns for shareholders over time.

Acccording to Watkins, once you determine an organization’s strategy is sound, you have to bring structure into alignment with strategy. Carl needs to put structure and strategies into place, and then measure the results. However, some of Carl’s ideas could stand much more study: For example, how will manufacturing cope with multiple demands from multiple divisions? What capacity will it need to add? The same is true of sales, finance, marketing, customer service and the other support functions. Do they have the bandwidth to do what Carl proposes? How will he preventing infighting for scarce resources? What additional funding will be needed?

There are good reasons for shifting some members of the team into new roles: to prevent certain VPs from leaving, to broaden the team members’ indiviual compentencies, and to strengthen weaker areas. However, Carl should first develop a detailed strategic plan with more detail on what the measures of success will be, and the scale the company needs to develop, before he restructures the management team. How does he know he’s correctly identified the positions without a more detailed plan? Then, he can restructure the management team if necessary to match competencies and abilities with organizational needs, and develop goals, incentives and measures.

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Keep calm and carry on

22 Feb

“Jesica’s Story” is heartbreaking. This U.S. News World Report expose from 7/28/2003 by Avery Comarow, subtitled “One mistake didn’t kill her — the organ donor system was fatally flawed,” tells the story of the death of Jesica Santillan, a 17-year-old with a failing heart. The story details a series of mistakes which ended fatally for Jesica: the transplant surgeon didn’t bring home his printout with patient data, an organ procurement coordinator didn’t challenge why Jesica’s name was not included on a match list, the pediatric nurse coordinator failed to flag an important detail for cross check on her medical information. Jesica received her heart transplant — of a heart pumping Type A blood, when she was in fact Type O. While it’s possible she might have been able to survive this with anti-rejection drugs, she didn’t. Worst of all, this was perhaps a failure caused in part by people caring too much. I think the transplant surgeon, James Jaggers, wanted so much to give Jesica a new heart that he failed to verify this important Med School-101 detail. Others involved in the mix-up — organ procurement coordinators, other surgeons, nurses — may have suffered the same heartfelt blindness, for one simple reason: It’s very difficult to find a heart suitable for transplantation in a child. When it looked like they had one that would work for Jesica, hope of a good outcome got the better of them, exacerbated by the incredibly tight timeframes for successful transplants. This speaks to the need for well-defined methods and processes, and a certain cool detachment necessary. Obviously, every possible detail involved in a heart transplant should be codified, although a lot of it was in Jesica’s case and the error still occurred. Perhaps someone with a medical background and no direct interest in the case (i.e. not the surgeon, not an employee of the transplant hospital, not a coordinator for the organ procurement organization) should perform an additional peer review prior to this type surgery as a final cross-check.

Although these two stories would seem to have nothing in common, a similar element also comes into play in “Two Football Coaches Have a Lot to Teach Screaming Managers” by Carol Hymowitz, which ran in The Wall Street Journal Jan. 29, 2007. The two coaches profiled, Tony Dungy of the Indianapolis Colts and Lovie Smith of the Chicago Bears, are all about rational judgment versus out-of-control emotion. Rather than screaming at their players as a lot of coaches do, Dungy and Smith give directives calmly and treat players with respect. Funny, when you don’t yell at people and rile up their emotions, they can focus better on the task at hand. Keep a cool head, or as a now wildly popular reissued British propaganda poster from World War II says, “Keep Calm and Carry On.”

Keeping calm also has a lot to do with another story, “Get Healthy–or Else,”  Business Week’s 2/26/2007 cover story by Michelle Conlin. Jim Hagedorn, the CEO of Scotts Miracle-Gro Co., has carried out an “all-out attack on medical costs.” Hagedorn had an epiphany about employee health care, and started his crusade by calling his HR director at 11 p.m. to get the ball rolling. While there’s nothing wrong with calling your staff occasionally at odd hours, this and other telling details in the story point up a little recklessness on Hagedorn’s part. He has part of the solution, no doubt, and there’s no question his company’s health-care bill was ballooning, or rather careening, out of control, with costs surging at a double-digit rate annually. However, his solution seems both hasty and Draconian. Perhaps a calmer, less emotional approach and more consultation with the affected employees might produce more sustainable long-term results.

Case Study — Southwest Airlines

17 Feb

Case Study — Southwest Airlines: Using Human Resources for Competitive Advantage
Summary

A blast from the past, circa 1994: Case Study HR-1A from the Graduate School of Business at Stanford University asks us to review Southwest Airlines’ competitive position in light of actions by United and Continental to directly copy its low-fare model. Southwest’s success bit, and bit hard, into the market share of Continental and United. Now they’re fighting back by aping Southwest, down to the 15-minute gate turnarounds. Could the competition successfully imitate Southwest’s successful human-resources practices too? Ann Rhoades, Vice President of People, needs to make some recommendations to the leadership team. What should she propose?

Challenges

  • Could Continental and United’s new service offerings damage Southwest? What actions should senior management take to offset this threat from a people perspective?
  • “Dying from excessive prosperity”: How does Southwest tamp down possible overconfidence as it grows? How does it continue its so-far-effective people policies and management?
  • What should be done about leadership succession in case legendary CEO-chairman-president Herb Kelleher keels over from one Wild Turkey too many?

Quantitative/Qualitative Analysis

On just about every service measure, Southwest leads.

  • It’s never had a serious accident. It’s won the Triple Crown numerous times for on-time performance, the fewest lost bags and the fewest customer complaints.
  • It’s never had a labor dispute.
  • Its main competitive advantage is its workforce.

It leads on financial measures too.

  • It’s profitable. Revenue continues to grow. Net income up dramatically in 1993 over 1992. Debt is down. Its passenger load factor is strong.

Conclusion: Southwest can afford to invest in fighting off the competition.

And the competition? Weak.

  • Continental just emerged from bankruptcy. It’s yet to turn a profit. Employees aren’t thrilled with the extra duties, and they’re not making their turnaround times. Its leader, Bob Ferguson, is known as a harsh taskmaster. There are other structural issues with Continental Lite too. (And what about the horrid name?)
  • United’s recent employee buyout didn’t even include flight attendants, the face of the airline. The CEO stepped down, and new CEO with no airline experience has been brought in. It’s losing money. Its culture is “the opposite of Southwest.”

Recommendations

Ann should focus on continued enhancement of what already works at Southwest, with an eye to meeting the challenges. Let competitors shoot themselves in foot – given their histories, it’s bound to happen. Broadly, Ann should propose:

  • Keep the culture, while continuing to grow.
  • Keep the culture, even when bigger competitors such as Continental and United try to copy it.
  • Keep the culture, even when leadership changes.

Specifically, Ann could propose these tactics:

Usher in the Underdog Era

Underdog flying

Patrick Owsley's Underdog

  • Immediately include employees in the crusade, which Kelleher has already done with United in his “Commencement of Hostilities” memo. Given the history of trust at Southwest, be candid and complete. Develop a shared vision of the future.
  • As Kelleher says, “Anger can be a great motivator.” Get employees angry, yet keep them focused through communication, training and results metrics.
  • Draw on past history, i.e. the early dark days at Love Field, to refresh and renew the corporate spirit that has driven the company since its earliest days.
  • Identify specific operational and financial goals and metrics associated with the crusade which would be used to judge success and drive reward programs.
  • Develop a program budget for associated training, employee rewards and other incentives detailed below.

Develop Underdog training

  • Create formalized, specialized employee training program for “underdogs.” This could both enhance existing service characteristics while reinforcing the current state-of-siege mentality. Have Herb can don an Underdog costume to kick it off.
  • In attitude-based hiring, introduce an Underdog component. How resourceful are potential employees at developing ways to win even when competition is overwhelming?

Introduce time-limited Underdog rewards

  • Reward specific instances of employees showing the Underdog spirit, such as finding a way to keep peanut costs down or a turnaround shortcut. Rewards could include free flights.
  • Make the competition fun, with plenty of parties to celebrate milestones.
  • Develop a special Underdog bonus program for meeting specified metrics, such as costs per available seat mile, within a certain timeframe.
  • Add a profit-sharing percentage increase if employees meet the goals during the specific Underdog timeframe.

Create a competitive committee, just like the culture committee

  • Stand back and let employees develop ways to combat threats now and in future.
  • Relay data on competitive metrics to team to define progress.

Develop succession strategy for leadership

  • Have Kelleher as Moses handing down The Ten Commandments for Southwest Leadership. It stresses he may not see the Promised Land with them, while casting in stone the values Southwest should live by.
  • Develop succession ladder, with Colleen Barrett identified to succeed Kelleher. She is viewed positively by employees and referred to as the “backbone of the company.”

Non-people tactics Ann could include

  • Look at marketing: 80% fly nonstop. Surface travel is a key Southwest competitor. Develop an anti-driving advertising campaign?
  • Enhance Company Club bonuses for customers as part of the Underdog effort.
  • Clearly communicate competitive issues to shareholders, and enlist their support. The financial investment associated with funding the battle could decrease net income.

Real-world results (as of 2010)

  • Southwest’s reputation for customer service, low cost and on-time arrivals remains intact. It’s been consecutively profitable for 37 years.
  • Colleen Barrett was named president to succeed Kelleher.
  • Continental Lite failed.
  • United Shuttle failed and was folded back into United. A later version, TED, also failed.

Want to be profitable? Start with your employees.

8 Feb

Flanagan's image from The Wall Street Journal

Read about Denny Flanagan, and you can’t help but love him. Flanagan, a United Airlines pilot, was featured in an August 28, 2007 story in the Wall Street Journal on page A1, “To a United Pilot, The Friendly Skies Are a Point of Pride; Capt. Flanagan Goes to Bat For His Harried Passengers; Still, Some Online Skeptics.”

Just a few of the perks for Flanagan’s fliers: photos of their pets in the cargo hold, bottles of wine and notes to first-class passengers. Flanagan even makes calls on his cell phone to inquire about connections and reroute misdirected luggage!

Flanagan is described as an “outlier” with United. Sadly, Flanagan is an outlier in most organizations. So how do we create more cultures that create more Flanagans? How to we encourage behavioral change across an organization?

Conversely, why are there so few Flanagans in an organization like United? Is it malaise? Is it familiarity with routine? Is it a lack of strongly stated values or personal principles? Flanagan has a philosophy on how people should be treated: “I just treat everyone like it’s the first flight they’ve ever flown.” If each employee had a value statement like that, would that cause him or her to behave differently?

If the Flanagans of the world – and the anti-Flanagans – could be effectively studied, and their behavior analyzed and codified, perhaps we would know the answer to these questions and could uniformly apply the principles learned to a variety of businesses.

According to “Small Business (A Special Report); Rules of Engagement: Why employers should — and increasingly do — care about creating a great workplace,” a Wall Street Journal article by columnist Sue Shellenbarger, there is a strong relationship between employee attitudes like Flanagan’s and the bottom line.  While there is scant hard data in this article, Shellenbarger quotes a Conference Board study which said there is “’clear and mounting evidence that employee engagement is strongly correlated to’ productivity, profit and revenue growth.” Some engagement mechanisms are cited in Shellenbarger’s story – flex time, fitness facilities, benefits and the like – but the mechanisms can’t be the whole story. It has to come from culture, and from people, not just policies.

And that leads to a fairly simple, commonplace conclusion: It has to come from the top to work. One outlier like Flanagan does not a friendly airline make.

How to change your personality

1 Feb

Believe you CAN change your personality. Or your intelligence. Or your work habits. Or your prospects for success.

According to Carol S. Dweck’s research, believing is key. Dweck explored this concept in “Can Personality Be Changed? The Role of Beliefs in Personality and Change” in a keynote address to the 2007 Annual Convention of the Association for Psychological Science and a corresponding publication. A researcher in the Department of Psychology at Stanford University, Dweck’s work and that of her colleagues states “… much of personality is a flexible and dynamic thing that changes over the life span and is shaped by experience.”

Her research shows that acquired beliefs, such as “I am good at math,” play a critical role in how well people function. Some people’s beliefs in their qualities, such as intelligence or how they do at math, are fixed — that is, they can’t be changed. Other people have malleable beliefs, believing that these qualities can be developed through their efforts and education. In a 1999 paper, Dweck states “Research shows that people with a malleable theory are more open to learning, willing to confront challenges, able to stick to difficult tasks and capable of bouncing back from failures.” Research with college and junior-high students showed that when they thought their brains were nimble, flexible and capable of new learning — lo and behold, their brains were nimble, flexible and capable of new learning.

Bob Sutton boils Dweck’s conclusions down further: “When people believe they can get smarter, they do. But — and this is very important — when people believe that cognitive ability is difficult or impossible to change, they don’t get smarter.”

Our role as managers? Encourage malleability. Help our staff and peers see opportunities for change, growth and learning. Believe in our own abilities to change. If we believe that change can happen, a whole new realm of possibilities will open — personal, professional and societal.